Apple Takes Heat from Qualcomm Fight, Chinese Competition
Stung by Apple's recent decision to withhold royalty payments for its technologies in iPhones, chipmaker Qualcomm is reportedly planning to ask the Washington, D.C.-based International Trade Commission (ITC) to prevent importation of the devices into the U.S.
Apple relies on Asia-based manufacturers to produce its flagship smartphones, and is already reported to be experiencing supply challenges ahead of its next big iPhone launch, expected in the fall. Citing "a person familiar with the company's strategy," Bloomberg reported Wednesday that Qualcomm is preparing to ask the ITC to block new iPhones from entering the U.S.
Meanwhile, Qualcomm is facing multiple lawsuits recently filed against it by Apple in the U.S. and China, as well as allegations of unfair practices filed in January by the Federal Trade Commission.
'Need the Courts To Decide'
The complaints stem from the royalties Qualcomm charges for Apple's use of its patented technologies, which enable mobile phones to connect with cellular networks. Qualcomm's technology was used to set the industry standard for mobile communications, and the company agreed to license its technology to phonemakers on "FRAND" ("fair, reasonable and non-discriminatory") terms.
In a lawsuit filed in January, Apple accused Qualcomm of unfairly charging royalties for "technologies they have nothing to do with," adding that the company had withheld nearly $1 blllion in fees owed to Apple as "retaliation" for providing information about Qualcomm to regulators in South Korea.
Last Friday, Qualcomm announced that Apple had begun withholding payments to manufacturers "for the royalties those contract manufacturers owe under their licenses with Qualcomm for sales during the quarter ended March 31, 2017." Qualcomm added that action would lower its expected third-quarter revenues by around $500 million.
On Tuesday, during Apple's second-quarter earnings call, CEO Tim Cook said that he didn't believe case law would support an attempt to block iPhones from being imported into the U.S.
"In terms of why we're withholding royalties, you can't pay something when there's a dispute about the amount," Cook added. "You don't know how much to pay. And so they think we owe some amount, we think we owe a different amount, and there hasn't been a meeting of the minds there. And so at this point, we need the courts to decide that."
Tablet Troubles, China Slowdown
While its dispute with Qualcomm continues, Apple is also facing challenges on several other fronts. Two recent reports from the analyst firm IDC show the company is slipping in its smartphone market share in China, and also feeling a pinch from global declines in tablet sales.
Huawei and OPPO now hold the top two spots after double-digit growth over the past year, according to IDC's report on first-quarter smartphone sales in China. Apple's sales during the same period dropped nearly 27 percent, IDC said.
But Apple retains the top spot in worldwide tablet sales, although first-quarter sales declined by 13 percent, according to a separate IDC report. The overall global tablet market shrank by 8.5 percent compared to the same quarter in 2016, IDC added. IDC's smartphone report also noted that the next iPhone release this fall could improve Apple's position in China.
"Apple has been seeing double-digit YoY declines for the fifth quarter in a row, but we believe that Chinese consumers are holding out for the launch of Apple's 10-year anniversary iPhone at the end of the year, and this will help Apple to see a rebound in the China smartphone market," IDC analyst Tay Xiaohan said in a statement.
Posted: 2017-05-06 @ 12:08pm PT
"In terms of why we're withholding royalties, you can't pay something when there's a dispute about the amount," Cook added. "You don't know how much to pay. And so they think we owe some amount, we think we owe a different amount, and there hasn't been a meeting of the minds there."
That's a ridiculous characterization. Apple pays contract manufacturers in Asia to build iPhones and it is those manufacturers who pay the royalty for the Qualcomm inventions that make the devices work.
Those same manufacturer's had licenses with Qualcomm before Apple ever made the first iPhone and the royalties have gone down slightly since then, not up. Apple has not stopped paying Qualcomm but they have caused their overseas contract manufacturers to breech their long-standing license contracts by not paying the agreed upon amounts.
For Apple to say the rate is too high is funny considering that Apple is the most profitable public company ever and this profitability was driven by the underlying innovations that allow massive amounts of data to be wirelessly transmitted by tens of thousands of users simultaneously.
Qualcomm's innovative technology has allowed Apple to grow too big for their britches and tet, they claim they are not getting a large enough slice of the pie.
In the meantime, nearly 20,000 Qualcomm engineers are hard at work developing the next generation of wireless technologies. Qualcomm is investing billions of dollars developing new bleeding edge technologies while Apple is more concerned about the "look" and "feel" of the iPhone 8. Oh, and complaining that they should get an even larger slice of the pie!